Thursday, August 4, 2011

Gold at $2,000? I didn’t used to think so – but now I am not so sure. In fact, I’m almost convinced it will happen before the year is out.

Last week’s events on Capitol Hill in the US were very damaging. After we abandoned the gold standard, the dollar is now the globe's reserve currency - and US politicians decided to play a game of chicken with the debt ceiling. Their behaviour verged on the shameful.

The fact that an 11th hour deal was done and the ceiling was raised is a relief, but the process shattered trust and confidence in US politicians.

There is also an uncanny correlation between the gold price and the US debt ceiling. Over the past 30 years, the gold price has tracked the ceiling whenever it has been raised.

The US economy is also flat lining, with slower growth now expected - confidence in the country evaporated overnight and a frantic hour of trading on Wall Street sent the Dow Jones Industrial Average on its worst run since the financial crisis, falling for the eighth successive day.

This gloom has also raised the prospect of more money printing by the Federal Reserve. QE3 is not a certainty, but it is now more likely than it was even last week. This will further debased the value of the dollar and will cause even more investors to flee to the safe-haven currency of gold. (more)